Why sell HME retail? Just do the math. After 30 to 40 percent reimbursement cuts annually from Medicare for the past several years and with competitive bidding rolling out nationally, whatever profit margin you once enjoyed will be reduced by at least two-thirds.
In contrast, if you view every Medicare patient as a sales lead, then you will focus on meeting their complete home health care needs instead of billing only for their Medicare-reimbursable products.
Your patient's reimbursable item now represents your basic revenue, while the related, add-on products represent your increased profits from additional sales per customer.
Why Retail?
There are two components that both traditional DMEs and retail HMEs share.
The first is Medicare billing, as they must either outsource the billing or purchase billing software and hire qualified billers. The other is referral source marketing, because all HMEs must generate patient referrals by calling on their clinical referrals sources on a regular basis.
But one significant change in the home health care marketplace — our customer base — illustrates the difference in traditional and retail business.
Ten to 20 years ago, seniors were both our customers and the end-users. But today, they are primarily the end-users as they are older and less mobile. Our customers are now their adult children or other relatives who are their family caregivers.
This difference impacts our product selection and the ensuing growth of retail sales. Seniors are Medicare recipients who are accustomed to receiving their basic “entitlements” without any additional costs. They are focused only on meeting their medical necessities.
However, their adult children and/or family caregivers are more concerned about maintaining and improving their overall daily quality of life. They are willing to pay out-of-pocket for products and services that they think will better meet the health care needs of their loved ones.
The end result today is that to close sales in a retail HME store, you need to offer a complete product selection. This usually means at least two choices for every product: a basic option and then an upgrade.
In the big ticket categories such as lift chairs and scooters, this usually translates into numerous good/better/best product options. And by demonstrating the best product first and then working down to the basic option, retail salespeople are usually able to sell over half of their customers an upgraded model.
The Value of Retail
By offering this complete product selection, retail HMEs report higher sales-per-customer, margins and profits.
The average retail HME is approximately 2,500 to 3,000 square feet with a 1,000- to 1,500-sq. ft. showroom. The average sales-per-square-foot in a retail HME equals $1,000/ft. in annual gross sales. A 1,000-sq. ft. showroom would help to generate at least $1 million in total sales at any given location. (And that figure could easily grow to $3 million to $5 million after a few years.)
This retail HME scenario reflects sales revenues that range from 30 to 60 percent retail. But the national average for traditional DMEs is much less than that at roughly one-third retail (or even less), one-third Medicare/Medicaid and one-third managed care or other third-party payers.
Another important sales indicator for retail HMEs is that most customers purchase two or three items. In other words, for every transaction, be they Medicare/Medicaid or cash, a customer also buys other related products.
For example, with every bed rental, approximately $400 of related products are also sold for cash, such as sheets, a foam support surface product and other aids to daily living.
The Retail Ingredients
There are several other significant differences between traditional home care companies and retail HMEs. The following list highlights issues you need to consider if you are thinking about making this transition:
- Location
Most traditional DMEs are located in industrial or commercial areas where they can afford the luxury of maintaining large warehouses. However, retail businesses such as drug chains are successful retailers because they build only in locations that are highly visible and convenient to access.
Because the rent is higher than for a warehouse, retail HMEs place only retail operations at these locations, such as the showroom and sales staff. The back room operations such as insurance, warehouse, rental equipment, pickup and delivery, are based nearby in a less expensive garage or warehouse building.
- Showroom
Most traditional DMEs look more like storerooms than showrooms. Products are lined or stacked up everywhere, and boxes are often piled on shelves for storage.
In contrast, what sells in retail is display. Product needs to be displayed out-of-the-box so that customers can touch and try before they buy. Walk into any Apple, Brookstone or Sharper Image store to see how this process works so successfully.
- Product Mix
Many traditional providers just offer rental equipment or focus on either respiratory or rehab. If someone requests a walker or bath safety product, they send the patient down the street to a full-service competitor.
Why send business away when the goal in retail is to become a “category killer” and meet all of your customers' needs? To become the local home health care retail destination, first you need to determine the home health care needs of your customer base and then display all of the core and related products in those related categories.
- Salesperson
The first person a patient comes into contact with at a traditional home care company is the insurance intake coordinator. This simplifies and facilitates the billing process. However, most of these Medicare/Medicaid patients leave as soon as the paperwork is done.
In contrast, when a patient or customer enters a retail HME, he or she is immediately greeted by a customer service representative. That CSR qualifies the customer to find out as much as possible about the end-user, and then explains and demonstrates all of the home care products that would be of benefit to this person. The insurance intake does not take place until after this customer/patient qualifying, education and demonstration.
Jack Evans, president of Global Media Marketing, Malibu, Calif., is a home health care educator and marketing specialist who works with HME providers, pharmacists, distributors and manufacturers to develop both business-to-business and business-to-consumer marketing and advertising programs. His retail HHC programs include showroom design, demographic merchandising, product and sales training, marketing and advertising. Evans can be reached at 310/457-7333 or at www.retailhomecare.com.
How Do You Process Your HME Rentals?
Scenario #1: Traditional DME
A patient from the referral source is directed to an insurance intake person. All Medicare forms are filled out, and home delivery is arranged.
Goal: Process as many Medicare intakes per hour as possible (i.e., spend as little time as possible with each patient).
Scenario #2: Retail HME
The patient or end-user is qualified by a customer service representative and shown all core and related products that meet their home health care needs. Then insurance is discussed, the intake process occurs, home delivery is arranged and several related products are rung up as cash sales.
Goal: Cross-sell as many related products as possible for each Medicare/Medicaid patient (i.e., spend as long as possible with each customer).
Maximize Profit from Your Core Category
The more product displayed on the showroom floor, the higher your sales and profits. This means items like scooters, power chairs, lift chairs, wheelchairs, and oxygen delivery systems.
Displaying a complete product selection of features, benefits and prices helps to close sales:
- 2-3 lift chairs displayed = 1-2/month sold
- 5-6 lift chairs displayed = 3-4/month sold
- 10-12 lift chairs displayed = 2-3/week sold = 8-12/month sold
- 15 lift chairs displayed = 4-5/week sold = 16-20/month sold!
| Traditional DME | Retail HME | |
|---|---|---|
| Payer | Medicare/Medicaid | Medicare/Medicaid and/or cash |
| Revenue Mix | 90% Medicare/Medicaid, 5% cash | 40% Medicare/Medicaid,25-60% cash |
| 35% Medicare Cuts | 35% × 90% = 31% less | 35% × 40% = 14% less |
| Average Number of Products/Transaction | 1 (medical necessity) |
2-3 (medical need) |
| Cash Cycle | 90% = 69 days | 30+% = 1 day |
